Tips for Preparing for an IRS Audit

According to the Internal Revenue Service (IRS), an audit is a review/examination of an organization’s or individual’s accounts and financial information to ensure information on a tax return is being reported correctly, according to the tax laws, to verify the amount of tax reported is accurate. While the IRS performs audits on individual tax returns every year, the chances that your tax return will be audited could be fairly low. Of the over 144 million individual tax returns submitted in 2010, only 1.1% were audited.

While it may seem scary to have the IRS review the details of your tax return, audits aren’t necessarily something to fear. If your records are complete and accurate, you have a reasonable chance of moving through the audit smoothly. In fact, according to the Department of Treasury, in about 25% of audits, the IRS makes no changes or issues a refund.

If you are being audited, consider these tips to help prepare:

Take Action Promptly

When you get an audit letter from the IRS, you will have a limited amount of time in which to respond, otherwise the IRS can take drastic actions such as adjusting your total tax liability. Consult with a tax professional to help you navigate the audit process, consider contacting a CPA, tax attorney, or Registered Agent (RA).

If you find that you are missing receipts or documentation, start the process to recover them as soon as possible.

Organize Your Records

One key to navigating an IRS audit is having robust records. The IRS’s audit letter normally includes a list of items they would like to review, which may include canceled checks, receipts, bank statements, etc. Before the actual audit, collect documentation of everything being requested and review with your tax professional. Be prepared to provide a copy to the IRS auditor, but keep the original documents for yourself.

If you find that you are missing receipts or documentation, start the process to recover them as soon as possible. For example, contact your bank or credit card company to get copies of statements or receipts. If you don’t have the records requested in your IRS audit notice, your deduction may be denied and you could owe more taxes.

Remember, Auditors Are People Too!

Taking out your frustrations on an IRS auditor likely will not make the audit process any easier. Always be courteous to your auditor. If you arrive at the meeting with your auditor with a negative attitude, he or she might be less willing to listen objectively to what you have to say.

Stay on Point

When you meet with the auditor, consider yourself to be providing testimony. Keep your explanations brief and to the point.

Know Your Rights

Taxpayers have a specific set of rights when it comes to audits, such as the right to decide when and where it will take place. For a full list of your rights under examination, check out IRS.gov.